5 financial traps awaiting young adults

By Yael Grauer

Students who venture into the world without grasping some basic financial concepts may be setting themselves up for disaster. Yet many young adults leave for college without the financial literacy necessary to understand and manage their money.

Want to avoid the pitfalls that many young adults encounter -- or just help a young adult you know who may soon be facing them? Take note of these five dangers.

1. Bank fees

Understand the different fees and penalties your bank doles out. Overdraft fees are easily preventable by paying attention to your account balance, and most banks have mobile apps for your smartphone that can make it even easier to check your funds. However, overdraft fees are not the only checking account fees.

The best way to avoid them? "When you're opening the account, take the extra time and read the fine print,"
says certified financial planner Brian Plain.

Many banks have monthly fees that are waived if you have direct deposit, and if you change jobs, you may be charged a fee without realizing it unless you're aware of your bank's rules. Many institutions offer overdraft options that can link a savings or money market account to your checking account should unexpected fees kick in.

2. High interest payments

If you're only doling out cash for the minimum payment on your credit card each month, you may be paying your card off for a lot longer, and at a much higher total sum, due to interest charges. Make sure to spend within your means, especially if you're finding that you're consistently charging more than what you're able to pay off each month.

"The money available may not mimic the type of lifestyle that you want to have, but it'll mimic the type of lifestyle that you can afford to have," says Plain.

Even offers to transfer credit card debt to a new card with no interest will have a date when interest charges begin, and interest may be charged on new purchases. Again, reading the fine print is critical.

3. Credit report dings

A single late payment on a credit card or student loan shows up on your credit report and remains for seven years. If you can't pay the amount due or are struggling with the due date, make sure to call your credit card company before the payment is due to work out an arrangement.

Make on-time payments and keep track of your credit rating as well. You can request a free credit report from the three major agencies once a year, and these can be staggered every four months to give you regular updates on your standing.

4. Fraud

A recent survey by the Financial Industry Regulatory Authority (FINRA) indicates that more than 80 percent of Americans have been exposed to financial scams, and that more than 40 percent are unable to identify classic red flags. Common fraud attempts include offers for "educational" investment meetings, or being offered a large sum of money in exchange for paying a fee or making an initial deposit.

Use common sense and be cautious around investments or offers that seem too good to be true.

5. Convenience checks

Some banks mail convenience checks that allow you to write a check against your credit card. The checks typically have a very high interest rate, and because they are sent by mail, they're not very secure either. Contact your credit card company and request that they stop sending these checks.

There are enough obstacles in early life as it is, so financial problems are among the last things that a young adult needs. But those who monitor their account balances, spend cautiously and regularly review their credit status are likely to sidestep many of the most common financial perils.